A rental property can provide a great flow of income for investors who pick a good property. Typically the characteristics of a good rental property include an excellent location and minimum maintenance and upkeep requirements.
But there comes a point for all investors when they should consider selling a rental property.
The reasons for this can vary depending on the people involved. For those beginning to think about a sale, a wise move is to consider the reasons why unloading a rental property could prove the smart move.
The following tips can help lead you to making the right decision.
The Bottom Line Changes on Your Rental Property
Sometimes, you buy a property and it makes good money as a rental for many years. However, for some rental properties, the tide turns at some point and the carrying costs outweigh the profit. Those could include maintenance or major repairs, or the fact you have to lower rental prices because a neighborhood has lost property values. Do the homework to see if your rental property remains profitable, and consider selling if that is not the case.
Tax Deduction Ends
The federal government allows rental properties to depreciate like any other business asset, creating a welcome relief on your taxes. However, after a certain period the IRS no longer allows this depreciation, typically at the point you recover the amount you paid for the property (or its market value when you converted it to a rental property). Read the rules, which can get complex, here.
Equity High, Market High
Everyone has a different equity position in the property they own. Hopefully, you fall into the smart and fortunate group who have managed to pay off the mortgage steadily throughout ownership. If this is the case and property values in your area have started to rise, considering selling and reaping the profit.
When You Can Tap Your 401K
Hopefully, you have invested in a 401K or other tax-advantaged account. At the age of 59 ½ you can withdraw money from such accounts without penalty. If the income from a 401K and the sale of the property combined can make your life more comfortable, then consider selling.
Government Benefits Kick
Along those same lines, if you have reached an age where Social Security payments start coming in, and you are eligible for Medicaid and Medicare, then your monthly costs will lower considerably. This could prove a good time to make the move and sell your rental property.
Rental properties, like everything associated with making money, should not have emotional attachments for the owner. Those who rent out their first home or their deceased parents’ old house often find it difficult to make the smart financial move because of the emotional attachment. No matter whether you decide to sell or not, make sure the decision comes from your head, not your heart.
As the above shows, certain moments in life provide the best opportunities to make a sell and realize your gain on a piece of property. However, everyone has a different situation. Carefully consider your current finances and also your financial goals, then make the decision that provides you with the best possible outcome.